How does any organisation actually value its Human Capital? Countless boards in umpteen reception areas announce that people are the most valuable assets – or words to that effect. But, I want to know – how is that measured? Because, if you can’t actually measure it, those words are as empty as – well, Theewaterskloof dam last summer.
Facts about Organisational Value
Here are some facts that could be a good starting point:
- 70% or more of most organisations budget is people costs
- In most organisations, the “book value” – that is, the value of its Balance Sheet, is less than 20% of its “market value” – that is, what an investor is prepared to pay for shares in the organisation. The other 80% is “intangible assets” such as brand and the capabilities of the human capital of the organisation.
These 2 facts alone should be a major “wake up call” for most leaders.
Yet, we still find huge reluctance on the part of management to invest in the development of the organisations people. Why is that?
I propose that it’s because we really don’t understand, at the most fundamental level, what drives value for the 80% of the market value that is not accounted for in the organisation’s books of account. We worry about budgets, budgets, budgets. “We don’t have the budget!” “It’s not in the budget!” “Our budget will only be revised at the end of the year!” Yet, that is less than 20% of the value of the organisation!
What should Concern Management?
So, what should we be worrying about instead? Leaders should be concerning themselves with what drives the 80% of the organisations value. What is the 20% activity that we should be doing that impacts 80% of the organisation’s value? We should be asking questions such as:
- What organisation capabilities are needed?
- How should they be structured to optimise value?
- Which capabilities deliver the greatest value?
- How do we measure Return on Investment in building capability?
These are not easy questions to answer, but there are answers.
As long as people development is relegated to an expense item on an Income Statement, you – the leaders of business – are losing out. You are not fulfilling the role that was assigned to you, which is to drive business value. That means focussing on the 80%, not just the 20%.
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TalentAlign works with HR in organisations to fast-track their knowledge, skills and processes to not only support Agile Transformation, but to actually help facilitate it. We offer:
- Agile HR Professionals Mastermind – Learn and implement Agile HR in a group for quicker and better outcomes—for Solo HR Professionals or HR Departments
- Agile People Coach – Agile HR transformation in the same way that IT was so successful. Copy success—don’t reinvent the wheel!
- Agile Organisation and Role Design – Define structures and roles for flexibility while maintaining integrity in an Agile environment
- Agile Career and Competency Management – Retain your top skills. Career Mosaics based on Competencies so people can decide on their own career—but still within the organisation
- Agile Performance Management – Performance Management that actually leads to improved organisational performance with long– and short-term goals